Updated Notice of Extraordinary General Meeting

Monday

Oct112010

October 11, 2010

Updated Notice of Extraordinary General Meeting

11 October 2010

UPDATED NOTICE OF EXTRAORDINARY GENERAL MEETING

The attached Notice of Extraordinary General Meeting replaces the Notice lodged with the

ASX on 24 September 2010. The updated Notice was previously dispatched to

Shareholders on 24 September 2010.

Rowena Hubble

Company Secretary

NOTICE OF MEETING

SUNSHINE HEART, INC

Notice is given that an extraordinary general meeting of Sunshine Heart, Inc (ABN 79 109

440 888) (Company) will be held at 9am (Sydney time) at the offices of Henry Davis York,

Level 10, 44 Martin Place, Sydney on Thursday 28 October 2010 (General Meeting).

The business of the General Meeting will be as follows:

RESOLUTION 1 - INCREASE IN AUTHORISED CAPITAL OF THE COMPANY

To consider and, if thought fit, pass the following resolution as an ordinary resolution of the

Company:

"That, for the purposes of Article IX of the Company's Third Amended and Restated

Certificate of Incorporation (Certificate of Incorporation) and all other purposes, the

ordinary shareholders of the Company approve the amendment of Article IV of the

Certificate of Incorporation to increase the number of shares the Company is

authorised to issue to two billion (2,000,000,000) shares, each with a par value of

$0.0001 per share and of which one billion, nine hundred and sixty million

(1,960,000,000) shares will be common stock and forty million (40,000,000) will be

preferred stock."

RESOLUTION 2 - APPROVAL OF PROPOSED PLACEMENT

To consider and, if thought fit, pass the following resolution as an ordinary resolution of the

Company:

"That, for the purposes of ASX Listing Rule 7.1 and all other purposes, the ordinary

shareholders of the Company approve:

(a) a placement of ordinary shares (to be delivered as CHESS Depositary

Interests) and options to subscribe for ordinary shares (to be delivered as

CHESS Depositary Interests) in the Company; and

(b) a grant of additional options to subscribe for ordinary shares) to be delivered

as CDIs) in the Company if the Company has not registered for listing on the

US NASDAQ exchange by 31 December 2011,

to institutional clients of Summer Street Research Partners, Inc. and RBS Morgans

Limited, as described in the Explanatory Statement accompanying and forming part

of this Notice of Meeting, including that the terms of the options are that they expire 4

years from the date of grant, are exercisable for 3.2 cents each, the terms are to be

changed to comply with the ASX Listing Rules if the Company's capital is

reorganised and do not confer any no right to participate in new issues without first

being exercised."

RESOLUTION 3 - APPROVAL OF THE SUNSHINE HEART, INC AMENDED AND

RESTATED 2002 STOCK PLAN

To consider and, if thought fit, pass the following resolution as an ordinary resolution of the

Company:

"That, for the purposes of ASX Listing Rule 7.2, Exception 9 and all other purposes,

the ordinary shareholders of the Company approve the issue of securities under the

Sunshine Heart, Inc Amended and Restated 2002 Stock Plan as set out in the

Explanatory Statement accompanying and forming part of this Notice of Meeting ,

including that the terms are to be changed to comply with the ASX Listing Rules if the

Company's capital is reorganised and do not confer any no right to participate in new

issues without first being exercised."

RESOLUTION 4 - APPROVAL OF SECURITIES TO BE GRANTED TO AN EXECUTIVE

DIRECTOR UNDER THE SUNSHINE HEART INC AMENDED AND RESTATED 2002

STOCK PLAN

To consider and, if thought fit, pass the following resolution as an ordinary resolution of the

Company:

"That, for the purposes of ASX Listing Rule 10.14 and all other purposes, the ordinary

shareholders of the Company approve the grant of options (pursuant to the Sunshine

Heart, Inc Amended and Restated 2002 Stock Plan) to Mr David Rosa, an executive

director of the Company, to subscribe for fully paid ordinary shares (to be delivered

as Chess Depositary Interests) in the Company on the terms set out in the

Explanatory Statement accompanying and forming part of this Notice of Meeting."

Dated 24 September 2010

By Order of the Board

Rowena Hubble

Company Secretary

The accompanying information for Shareholders and the Proxy and Voting Instructions form part of this

Notice of Meeting.

VOTING INSTRUCTIONS

1 EXPLANATORY STATEMENT

Shareholders and CHESS Depositary Interest (CDI) holders are referred to the

Explanatory Statement accompanying, and forming part of, this Notice of Meeting for

more details on the resolutions to be voted on at the meeting. Before deciding on

how to vote on the resolutions, shareholders and CDI holders should carefully read

the Explanatory Statement.

2 VOTING EXCLUSION STATEMENT

As required by the ASX Listing Rules, the Company will disregard any votes cast by

the persons listed below and any associates of such persons:

Resolution Persons excluded from voting

Resolution 2 - Approval

of proposed placement CHESS Depositary Nominees Pty Ltd in respect of

votes exercised pursuant to a voting direction from a

person who may participate in the Placement and a

person who might obtain a benefit, except a benefit

solely in the capacity of a holder of ordinary securities,

if the resolution is passed

Resolution 3 - Approval

of the Sunshine Heart,

Inc Amended and

Restated 2002 Stock

Plan

CHESS Depositary Nominees Pty Ltd in respect of

votes exercised pursuant to a voting direction from a

director of the Company (unless such director is

ineligible to participate in any employee incentive

scheme in relation to the Company)

Resolution 4 - Approval

of securities to be

granted to an executive

director under the

Sunshine Heart, Inc

Amended and Restated

2002 Stock Plan

CHESS Depositary Nominees Pty Ltd in respect of

votes exercised pursuant to a voting direction from a

director of the Company (unless such director is

ineligible to participate in any employee incentive

scheme in relation to the Company)

However, the Company need not disregard a vote if it is cast by:

• a person as proxy for a person who is entitled to vote, in accordance with the

directions on the proxy form; or

• the person chairing the meeting as proxy for a person who is entitled to vote,

in accordance with a direction on the proxy form to vote as the proxy decides.

3 VOTING ENTITLEMENT

The board of directors of the Company (Board) has determined that, for the

purposes of ascertaining voting entitlements at the General Meeting, all shares in the

Company will be taken to be held by the persons who hold them as registered

members in the Company's share register at 9am (Sydney time) on 26 October 2010

(Entitlement Time).

This means that if you are not the registered holder of a relevant share in the

Company at the Entitlement Time, you will not be entitled to vote in respect of that

share.

3.1 How to exercise your right to vote

As set out below, voting methods for CDI holders and certificated shareholders differ.

(a) CDI holders

CDI holders are invited to attend, but are not entitled to vote personally at,

the General Meeting. CHESS Depositary Nominees Pty Ltd (CDN) holds

legal title to the Company's shares for and on behalf of CDI holders. As the

holders of the beneficial interest in the Company’s shares that are held by

CDN, CDI holders should direct CDN how to vote with respect to the

resolutions described in the Notice of Meeting. CDN must exercise its right to

vote by proxy at the General Meeting in accordance with the directions of

CDI holders.

CDI holders should complete the CDI voting direction form provided with this

Notice of Meeting and return it to Link Market Services Limited no later than

9am (Sydney time) on Tuesday 26 October 2010 by either:

• post to Locked Bag A14, Sydney South, NSW 1235;

• hand delivery at Level 12, 680 George Street, Sydney, NSW 2000;

• facsimile to facsimile number (02) 9287 0309.

(b) Certificated shareholders

Certificated shareholders (that is, members who do not hold CDIs) entitled to

vote at the General Meeting can vote in the following ways:

• by attending the meeting and voting in person or, in the case of

corporate shareholders, by corporate representative; or

• by appointing a proxy to attend and vote on their behalf by completing

the attached proxy form.

A member entitled to attend and vote at the meeting is entitled to appoint a

proxy to attend and vote on their behalf. A member entitled to cast two or

more votes may appoint two proxies and may specify the proportion or

number of votes each proxy is appointed to exercise. If no such proportion or

number is specified, each proxy may exercise half of the member's votes.

Any fractions of votes will be disregarded. A proxy need not be a member of

the Company.

Where an appointment specifies the way the proxy is to vote on a resolution:

• the proxy is not required to vote on a show of hands, but if the proxy

does so, the proxy must vote that way;

• if the proxy has two or more appointments that specify different ways

to vote on the resolutions, the proxy must not vote on a show of

hands;

• if the proxy is not the chairperson, the proxy need not vote on a poll

but if the proxy does so, the proxy must vote that way; and

• if the proxy is the chairperson, the proxy must vote on a poll and must

vote that way.

If the chairperson is your proxy and you do not wish to specifically direct how

the proxy is to vote, you should tick the relevant box on the proxy form and

by doing so, you will be taken to have directed the chairperson to vote in

favour of the resolutions and the chairperson will exercise your votes in

favour of the resolutions.

A proxy form is enclosed with this Notice of Meeting. For an appointment of a

proxy to be effective, the appointment must be received by the Company at

least 48 hours before the meeting. If you wish to appoint a proxy to attend

and vote on your behalf at the General Meeting, please complete the proxy

form and ensure that it is signed and dated. The proxy form must be signed

by the member or an attorney duly authorised in writing. If the member is a

company, the form must be executed in accordance with section 127 of the

Corporations Act 2001 (Cth) (Corporations Act), or by the company's duly

authorised officer or attorney.

(d) Completing the proxy form

A member entitled to attend and vote at the meeting who wishes to appoint a

proxy to attend and vote on their behalf should forward the completed proxy

form and the authority (if any) under which it is signed, or a certified copy of

that authority, to Link Market Services Limited by either:

• post to Locked Bag A14, Sydney South, NSW 1235;

• hand delivery at Level 12, 680 George Street, Sydney, NSW 2000; or

• facsimile to facsimile number (02) 9287 0309,

so that it is received by Link Market Services Limited no later than 9am

(Sydney time) on Tuesday 26 October 2010.

EXPLANATORY STATEMENT

This information is provided to holders of ordinary shares and CDIs of Sunshine Heart, Inc.

(ABN 79 109 440 888) in connection with a General Meeting of the Company to be held at

9am (Sydney time) at the offices of Henry Davis York, Level 10, 44 Martin Place, Sydney on

Thursday 28 October 2010.

1 RESOLUTION 1 - INCREASE IN AUTHORISED CAPITAL OF THE COMPANY

1.1 Background

The Company is incorporated in the State of Delaware USA. Pursuant to Article IV of

its Certificate of Incorporation, the Company is currently authorised to issue:

• two classes of stock, being "Common Stock" and "Preferred Stock"; and

• a total of six hundred and forty million (640,000,000) shares (each with a par

value of $0.0001) comprising six hundred million (600,000,000) shares of

Common Stock and forty million (40,000,000) shares of Preferred Stock.

The Company currently has 539,078,350 shares of Common Stock on issue. The

Directors would like to increase the number of Shares the Company is authorised to

issue under its Certificate of Incorporation to enable it to issue further Shares in the

future above the current threshold in the Certificate of Incorporation.

1.2 Reasons for seeking securityholder approval

Pursuant to Article IX of the Company's Certificate of Incorporation, an amendment

to the Certificate of Incorporation to increase the Company's authorised capital is

required to be approved by both the Board and securityholders. The Board approved

(subject to securityholder approval), the proposed increase in the Company's share

capital and the amendment to Article IV of the Certificate of Incorporation on 9

September 2010.

1.3 The proposed increase in authorised capital

It is proposed that the Company's authorised capital be increased to two billion

(2,000,000,000) Shares (each with a par value of $0.0001) comprising 1,960,000,000

shares of Common Stock and 40,000,000 shares of Preferred Stock.

The proposed increase in authorised capital will enable the Company to (amongst

other things) raise additional equity capital in the future by issuing new Shares. As

discussed in relation to Resolution 2, the Company currently intends (subject to

securityholder approval) to issue 392,857,142 Shares to Institutional Investors,

together with 196,428,571 options to subscribe for Shares and 39,285,714 NASDAQ

Options (as referred to in section 2.3(a) of this Explanatory Memorandum) which, on

exercise, are convertible into Shares. Further, the Company intends to issue Shares

to existing securityholders pursuant to a rights issue (details of which are set out in

section 2.1 of this Explanatory Statement).

By increasing the number of Shares the Company is authorised to issue pursuant to

Article IV of the Certificate of Incorporation:

• the Company will not be required to obtain securityholder approval under the

Certificate of Incorporation to an issue of Shares in the future (provided the

Company does not propose to issue new Shares in excess of the limits under

the Certificate of Incorporation on its authorised capital);

• the Company may be required under the ASX Listing Rules to obtain

securityholder approval to a future issue of Shares (for example, if the

number of Shares to be issued exceeds the 15% rule in ASX Listing Rule

7.1); and

• any interests in the Company held by current securityholders may be diluted

upon the issue of further Shares in the Company.

1.4 Directors’ recommendation

The Directors unanimously voted in favour of the resolution to convene the General

Meeting for the purposes of putting Resolution 1 to the Company's securityholders.

None of the Directors has a direct interest in the subject matter of Resolution 1 or will

receive a benefit other than benefits the same as those that would be received by all

securityholders.

After due consideration, each Director recommends that securityholders vote in

favour of Resolution 1 to approve the increase in the number of Shares the Company

is authorised to issue pursuant to Article IV of the Certificate of Incorporation.

Each of the Directors intends to direct CDN to vote any Shares in which they have a

beneficial interest and any undirected proxies in favour of Resolution 1.

2 RESOLUTION 2- APPROVAL OF PROPOSED PLACEMENT

The Resolution seeks securityholder approval for the placement of 392,857,142

ordinary shares (to be delivered as CDIs) in the Company (Shares), 196,428,571

options to subscribe for Shares and 39,285,714 NASDAQ Options to subscribe for

Shares to American institutional clients of Summer Street Research Partners, Inc.

and Australian institutional clients of RBS Morgans Limited (Institutional Investors).

2.1 Background

(a) The Placement

The Company has recently received offers from Institutional Investors

interested in investing in aggregate approximately $3.7 million in the

Company.

Details of the proposed placement of Shares and options to the Institutional

Investors are set out in section 2.3 of this Explanatory Statement

(Placement).

(b) The Rights Issue

Following the General Meeting, the Company intends to undertake a rights

issue to raise up to $11 million (Rights Issue). Under the Rights Issue, it is

intended that existing securityholders will be offered the opportunity to

participate in a capital raising on essentially the same terms and conditions

as those applicable to the Institutional Investors under the Placement (other

than in relation to the NASDAQ Options, as referred to in section 2.3 of this

Explanatory Statement).

Pursuant to the ASX Listing Rules, the timetable for the Company's intended

Rights Issue will commence on the latest of the Company giving ASX an

Appendix 3B, and disclosure document, in relation to the securities to be

issued pursuant to the Rights Issue and the Company obtaining all necessary

securityholder approvals. As the Company requires securityholder approval

to increase the number of Shares that may be issued by the Company, the

timetable for the Rights Issue may not commence unless and until the

Company has obtained securityholder approval in relation to Resolution 1.

If securityholders approve the increase in the Company’s authorised capital

under Resolution 1, the Directors intend to immediately announce a non-

renounceable Rights Issue of up to $11 million at a price of 2.8 cents per

Share along with a four year option to subscribe for a further Share at 3.2

cents on the basis of one option for each two Shares subscribed for in the

Rights Issue.

Since essentially all the information about the Company that is relevant to the

Rights Issue will be contained in this Explanatory Statement, the Board

believes securityholders should have reasonable opportunity to consider their

position after receipt of this document and so intends that the Rights Issue

will be open for the minimum period under the regulations. Securityholders

are advised to seek any advice they require with this timetable in mind.

The Rights Issue will not be underwritten and securityholders will be able to

apply for “top-up" Shares above their entitlement.

The Company’s major shareholders, GBS Venture Partners Pty Ltd (ACN

072 515 247) as trustee for GBS BioVentures II and GBS BioVentures III and

CM Capital VT 4A Pty Ltd (ACN 118 848 829) as trustee for CM Capital

Venture Trust 4A and CM Capital VT 4B Pty Ltd (ACN 118 848 918) as

trustee for CM Capital Venture Trust 4B, have given a non-binding indication

of their intention to take up their entitlements under the Rights Issue.

2.2 Reasons for seeking securityholder approval

(a) ASX Listing Rule 7.1

ASX Listing Rule 7.1 provides that (subject to a number of exceptions) prior

approval of securityholders is required for an issue of securities by a listed

entity (such as the Company) if the securities will, when aggregated with the

securities issued by the entity during the previous 12 months, exceed 15% of

the number of the securities on issue at the commencement of that 12 month

period.

The proposed grant of Shares pursuant to the Placement and as detailed in

Resolution 2 exceeds the 15% threshold. Therefore, as required under ASX

Listing Rule 7.1, the Company seeks securityholder approval prior to making

the Placement.

2.3 The Placement

(a) General

It is proposed that up to 392,857,142 Shares (equating to 42% of the

Company's shares) will be issued to Institutional Investors at 2.8 cents per

Share for in aggregate approximately $11,000,000. In addition, each

subscriber for Shares in the Placement will receive:

• an option, exercisable at 3.2 cents per Share for a period of 4 years

from the date of grant, to subscribe for 1 Share for every 2 Shares

subscribed for in the Placement; and

• an additional option (NASDAQ Option), exercisable at 3.2 cents per

Share for a period of 4 years from the date of grant, to subscribe for 1

Share for every 10 Shares subscribed for in the Placement, if the

Company has not filed an application to register the Shares with the

US Securities Exchange Commission and filed an application to list

on NASDAQ by 30 September 2011.

(b) ASX Listing Rules

The information required to be provided to securityholders to satisfy ASX

Listing Rule 7.1 is specified in ASX Listing Rule 7.3.

For the purposes of ASX Listing Rule 7.3, securityholders are advised of the

following particulars in relation to the Placement:

• Subject to securityholder approval, a maximum of 392,857,142

Shares and 235,714,285 options (including the NASDAQ Options)

(collectively, Options) will be issued to Institutional Investors under

the Placement.

• The Company will issue and allot the Shares and Options no later

than three months after the date of the General Meeting.

• The Shares will be issued at a price of 2.8 cents per Share, raising in

aggregate approximately $11,000,000.

• The Options will be granted for nil consideration.

• The exercise price of the Options will be 3.2 cents and the exercise

price of the NASDAQ Options will be 3.2 cents per Share.

• The Options will be exercisable within 4 years from the date of grant.

• In the event of any reorganisation (including consolidation,

subdivisions, reduction or return) of the authorised or issued capital of

the Company, the rights of the optionholder will be changed to the

extent necessary to comply with the ASX Listing Rules applying to a

reorganisation of capital at the time of the reorganisation.

• The Options do not give the optionholder any right to vote, receive

dividends, participate in new Share issues or grant any other rights to

the optionholder until Shares are allotted pursuant to the exercise of

the Options.

• The Shares and Options will be issued to Institutional Investors, being

institutional and other qualified investors known to Summer Street

Research Partners, Inc. (Summer Street) and RBS Morgans Limited

(RBS) to be interested in investing in health care companies such as

the Company.

• The Shares issued pursuant to the Placement will rank equally in all

respects with the existing ordinary Shares on issue.

• The Company intends to use the funds raised under the Placement

and the Rights Issue to:

• advance the regulatory trials in the US by:

o concluding the current feasibility clinical trial and six-month

patient follow up;

o preparing the application for the larger FDA pivotal trial,

negotiating the protocols and applying for FDA approval to

start the trial. This trial is the precursor to approval to

market the C-Pulse in the United States);

• prepare and apply for CE Mark approval which will allow

marketing of the C-Pulse device in certain countries outside the

United States;

• complete development of tools for minimally invasive C-Pulse

procedure;

• continue product development of:

o the single unit C-Pulse system which integrates the current

two unit system consisting of battery pack and driver into

one smaller and lighter unit; this is targeted for completion

in 2011;

o C-Pulse II, which represents a completely implantable

second generation system;

o preliminary work on the Sync-Pulse system which would

offer the ability to directly connect to pacemaker and ICD

technology to potentially offer a new therapy;

• hire personnel required to support the above objectives;

• file an application to list on a US stock exchange; and

• provide working capital for the Company.

The Company does not expect to earn substantial revenues for several

years and then only if it is successful in commercialising the C-Pulse

device. The Company will therefore in future be seeking to raise

additional monies to begin to market the C-Pulse device (once the CE

Mark has been received in those countries accepting such mark) and

to fund the FDA pivotal study which is required before the C-Pulse

device can be marketed in the United States.

position

(i) Capital structure

The following table shows the maximum number of Shares on issue

following the Placement and the Rights Issue and the unlisted

securities issued by the Company:

Shares:

Number of Shares on issue as at 24

September 2010 539,078,350 Shares

Number of Shares to be issued pursuant

to the Placement 392,857,142 Shares

Total new Shares to be offered under the

Rights Issue 392,857,142 Shares

Total issued Shares after the Placement

and on close of the Rights Issue (if fully

subscribed) 1,324,792,634 Shares

Unlisted securities:

Number of warrants on issue as at 24

September 2010 3,200,000 warrants

Number of Options and NASDAQ Options

to be issued pursuant to the Placement 235,714,285

Number of placement options on issue

exercisable at $0.20 cents

16,000,000 options:

10,000,000 expire on 30

September 2010

6,000,000 expire on 14

November 2010

Number of employee options on issue

exercisable at:

$0.02

$0.08

$0.10

$0.15

$0.18

$0.20

$0.25

$0.30

$0.38

$0.48

$0.50

$0.60

914,281 employee options

5,347,214 employee options

1,000,000 employee options

1,421,416 employee options

730,063 employee options

147,500 employee options

2,996,200 employee options

1,959,742 employee options

300,000 employee options

40,000 employee options

882,000 employee options

19,400 employee options

The above table assumes that no options over Shares are exercised prior to

the record date for the Rights Issue.

(ii) Pro-forma statements of financial position

Set out below are summary pro-forma statements of financial

position, based on the audited statement of financial position for the

year ended 30 June 2010, adjusted to reflect the financial effect of

the Placement and the Rights Issue as if they had taken place at 30

June 2010.

As shown in the pro-forma statements of financial position below, the

principal effects of the Placement and the Rights Issue will be to

increase the Company's cash reserves by up to approximately

$11,000,000 (from the Placement) and $11,000,0000 (from the

Rights Issue), before costs, and increase the number of Shares on

issue by up to approximately 785,714,284 million to approximately

1,324,792,634 million. (These figures assume that none of the

existing options to subscribe for Shares are exercised prior to the

record date for the Rights Issue. The Board considers it unlikely that

a significant number of existing options will be exercised prior to that

date because the exercise price of most of the options is above the

Company's current share price. However, in the event that any

existing options are exercised, it is currently intended that any funds

so raised will be applied to the general working capital of the

Company.)

Consolidated Balance Sheet

$000’s 30 June

2010 Pro forma

Adjustments

Pro forma

Position

after

Placement

Pro forma

Position

after

Placement

and

Rights

Issue1

ASSETS

Current Assets

Cash and cash equivalents 3,942 11,000 14,942 25,942

Trade and other receivables 250 - 250 250

Tax rebate 785 - 785 785

Other receivables 155 - 155 155

Total Current Assets 5,132 11,000

16,132

27,132

Non-Current Assets

Property, plant and equipment 133 - 133 133

Total Non-Current Assets 133 - 133 133

TOTAL ASSETS 5,265 11,000 16,265 27,265

LIABILITIES

Current Liabilities

Trade and other payables 456 - 456 456

Provisions 82 - 82 82

Total Current Liabilities 538 - 538 538

TOTAL LIABILITIES 538 - 538 538

NET ASSETS 4,727 11,000 15,727 26,727

EQUITY

Contributed Equity 57,540 11,000 68,540 79,540

Retained losses (54,565) - (51,376) (51,376)

Reserves 1,752 - 1,739 1,739

TOTAL EQUITY 4,727 11,000 15,727 26,727

Note 1: This assumes the Rights Issue is fully subscribed.

The pro-forma statements of financial position are included for illustrative

purposes only. The actual assets and liabilities of the Company after the

Placement and the Rights Issue are likely to vary according to the ongoing

operations of the Company at the precise time of the Placement and the

Rights Issue. The pro-forma statements have not been audited.

(d) Effect of the Placement on the shareholding pattern of the Company

The result of the Placement will be to change the Top 20 shareholders

significantly. Whilst final details will depend on the results of the Rights

Issue, it is expected that the investors participating in the Placement will join

the Top 20 shareholders list.

(e) Additional information

As stated above, the Company is not required to comply with the takeover

provisions of the Corporations Act. However, in order to provide

securityholders with information to enable them to assess the merits of, and

make an informed decision about, the Placement the following additional

particulars in relation to the Placement are provided:

• Prior to the Placement none of the Institutional Investors are

securityholders in the Company.

• Other than the nomination of directors, no Institutional Investor has

expressed any intention of seeking changes to the Company’s

strategy, its operations, its policies (including capital requirements,

employment of present employees, financial or dividend policies) or to

the transfer or redeployment of its assets, if they are issued Shares

under the Placement.

• The Shares and Options are to be issued to the Institutional Investors

in accordance with the terms of the Securities Purchase Agreement

(SPA) entered into by the Company and each of the Institutional

Investors on or around 16 September 2010 and up to 3 months

following the EGM.. Pursuant to the SPA, the issue of Shares to the

Institutional Investors is subject to the satisfaction of certain

conditions (including the Company holding an extraordinary general

meeting and obtaining the requisite shareholder approval for the

Placement). The Shares and Options are to be issued to the

Institutional Investors within 3 months from the EGM, unless

otherwise mutually agreed by the parties. Under the SPA, both the

Company and the Institutional Investors make certain representations

and warranties which are standard in an agreement for the issue of

Shares.

• Development companies in the health care sector, such as the

Company, need to raise new capital from time to time until they have

passed all the regulatory requirements that will allow them to sell their

products into their markets. The Company is seeking to issue Shares

and Options under the Placement to raise funds for the purposes set

out in section 2.3(b) of this Explanatory Statement.

• The Company, being listed on the ASX and being a thinly traded

small cap stock, has constraints on the way it can take in new capital.

The terms of the Placement have been negotiated as being

compatible with the market in the Company’s shares at the time of the

Placement.

2.4 Directors’ recommendation

The directors of the Company (Directors) unanimously voted in favour of the

resolution to convene the General Meeting for the purposes of putting Resolution 2 to

the Company's securityholders. None of the Directors has a direct interest in the

subject matter of Resolution 2 or will receive a benefit other than benefits the same

as those that would be received by all securityholders.

After having duly considered the terms of the Placement, each Director recommends

that securityholders vote in favour of Resolution 2 to approve the Placement and

authorise the placement of the Shares to the Institutional Investors.

Each of the Directors who is ineligible to participate in any employee incentive

scheme in relation to the Company intends to direct CDN to vote any shares in which

they have a beneficial interest and any undirected proxies in favour of Resolution 2.

3 RESOLUTION 3 - APPROVAL OF THE SUNSHINE HEART, INC AMENDED AND

RESTATED 2002 STOCK PLAN

3.1 Background

The Company has in place the Sunshine Heart, Inc Amended and Restated 2002

Stock Plan (Plan). The purposes of the Plan are to attract and retain the best

available personnel for positions of substantial responsibility, to provide additional

incentive to employees and consultants and to promote the success of the

Company's business.

The Company proposes to issue securities under the Plan to Mr David Rosa as

detailed in Resolution 4.

3.2 Reasons for seeking securityholder approval

As referred to in section 2.2(a) of this Explanatory Statement, ASX Listing Rule 7.1

provides that (subject to a number of exceptions) prior approval of securityholders is

required for an issue of securities by a listed entity (such as the Company) if the

securities will, when aggregated with the securities issued by the entity during the

previous 12 months, exceed 15% of the number of the securities on issue at the

commencement of that 12 month period.

An exception to ASX Listing Rule 7.1 is set out in ASX Listing Rule 7.2 (Exception 9)

which provides that issues of securities under an employee incentive plan are

exempt from ASX Listing Rule 7.1 for a period of 3 years from the date on which

securityholders approve the issue of securities under such plan as an exception to

ASX Listing Rule 7.1.

The Company therefore seeks securityholder approval in relation to the issue of

securities under the Plan. Such approval will give the Company greater flexibility as

it will not be required to obtain securityholder approval under ASX Listing Rule 7.1

when it issues securities under the Plan during the 3 years following securityholder

approval of Resolution 3.

If the securityholders approve the Plan for the purposes of Resolution 3, the

Company will nevertheless be required to obtain securityholder approval under ASX

Listing Rule 10.14 in relation to future issues of securities under the Plan to a

director, associate of a director or any person whose relationship with the Company

is, in ASX's opinion, such that approval should be obtained.

A possible disadvantage if Resolution 3 is passed is the diluting effect an issue of

Shares under the Plan may have on existing securityholders' interests in the

Company if options issued under the Plan are exercised.

3.3 The Plan

For the purposes of ASX Listing Rule 7.2 (Exception 9), securityholders are advised

of the following particulars in relation to the Plan:

• No securities have been issued under the Plan since the date the issue of

securities under the Plan was last approved by securityholders.

• Except as set out on page 3 of the Notice of Meeting, the Company will

disregard any votes cast on this Resolution 3 by each of the Directors and

their associates.

• In the event of any reorganisation (including consolidation, subdivisions,

reduction or return) of the authorised or issued capital of the Company, the

rights of the optionholder will be changed to the extent necessary to comply

with the ASX Listing Rules applying to a reorganisation of capital at the time

of the reorganisation.

• The Options do not give the optionholder any right to vote, receive dividends,

participate in new Share issues or grant any other rights to the optionholder

until Shares are allotted pursuant to the exercise of the Options.

• A summary of the terms of the Plan are set out in Annexure 1 to this

Explanatory Statement.

4 RESOLUTION 4 - APPROVAL OF SECURITIES TO BE ISSUED TO AN

EXECUTIVE DIRECTOR UNDER THE SUNSHINE HEART, INC AMENDED AND

RESTATED 2002 STOCK PLAN

4.1 Background

Mr Rosa is entitled to receive option remuneration as short and long term incentives

at the discretion of the Board. Mr Rosa is also entitled to participate in the Plan,

subject to securityholder approval.

The Company seeks securityholder approval for options to be granted to Mr Rosa as

set out below. The options will be issued no later than 3 years after the date of the

meeting.

4.2 Reasons for seeking securityholder approval

ASX Listing Rule 10.14 provides that a listed entity must not permit a director to

acquire securities under an employee incentive scheme without the approval of

ordinary securityholders.

4.3 Details of the issue

(a) General

The Company proposes to grant options to Mr Rosa to acquire up to

20,000,000 Shares (Employee Options).

The grant of the Employee Options is subject to securityholder approval and

the vesting of the Employee Options is subject to the satisfaction of various

performance conditions that represent pre-defined corporate objectives.

Assessment of actual performance is resolved by the Board.

(b) ASX Listing Rules

The following information in relation to the proposed grant of options to Mr

Rosa under the Plan is provided in accordance with ASX Listing Rule

10.15A:

• Subject to securityholder approval, 20,000,000 Employee Options will

be granted to Mr Rosa entitling him to acquire a maximum 20,000,000

Shares.

• The price for each Employee Option to be acquired by Mr Rosa is nil.

The exercise price for each Share to be acquired by Mr Rosa on

exercise of the Employee Options is $0.05, which is a 43% premium

to the Company's Share price on 11 March 2010, which was the date

the Board approved the grant of the Employee Options subject to

securityholder approval.

• No persons referred to in ASX Listing Rule 10.14 (namely, Directors

or associates of Directors) have received securities under the Plan

since the last approval was granted on 30 October 2008.

• Mr Marsh, Mr Brooke, Mr O'Dwyer, Mr Brennan, Mr Rosa, Mr Callinan

and Dr Peters are entitled to participate in the Plan.

• The Company will disregard any votes cast on this Resolution 4 by

each of the Directors (except those who are ineligible to participate in

the Plan) and their associates.

• No loans have been made to Mr Rosa or any other party in relation to

the acquisition of securities under the Plan.

• Details of any securities issued under the Plan will be published in

each annual report of the Company relating to the period in which

• Any additional persons who become entitled to participate in the Plan

after approval of this Resolution 4 and who are not named in this

Notice of Meeting will not participate until approval is obtained under

ASX Listing Rule 10.14.

• The Employee Options will be granted to Mr Rosa on the date

securityholder approval to the grant is given. The Employee Options

will vest upon Mr Rosa meeting agreed performance conditions

including meeting specific Company milestones and upon his

continued employment with the Company for specified periods of

time. Any Shares to be issued to Mr Rosa on the exercise of the

Employee Options will be issued within 3 years of the grant of

securityholder approval.

Annexure 1

Summary of the terms of the Sunshine Heart, Inc Amended and

Restated 2002 Stock Plan

The following is a broad summary of the terms of the Plan.

• The Plan is administered by the Board or a committee (or both) as determined by the

Board.

• The administrator of the Plan (being the Board, a committee or both) (Administrator)

has authority to, amongst other things, select the employees and consultants to

whom Plan awards may be granted; determine whether and to what extent Plan

awards are granted and determine the terms and conditions of any award granted

under the Plan.

• Nonstatutory stock options and stock purchase rights may be granted to employees

and consultants of the Company as either nonstatutory stock options or incentive

stock options. Incentive stock options may be granted only to employees.

• The Plan does not interfere with a participant's or the Company's right to terminate

the employment or consulting relationship at any time.

• The term of each option granted under the Plan will be as set out in an option

agreement but must be no more than 10 years from the date of grant.

• The exercise price for the Shares to be issued pursuant to the exercise of an option

under the Plan is determined by the Administrator. The minimum exercise price is

determined with reference to the identity of the participant and the type of option (that

is, a nonstatutory stock option or incentive stock option) that has been granted to that

participant.

• An option granted under the Plan is exercisable at the times and under such

conditions as the Administrator determines.

• The Administrator has the discretion to determine whether and to what extent the

vesting of options under the Plan are tolled during any unpaid leave of absence.

• An option may not be exercised for a fraction of a Share and the Administrator may,

subject to some exceptions, require an option be exercised as to a minimum number

of Shares.

• A participant has no right to vote, receive dividends or to participate in any new issue

of Shares with respect to an option until such time as they have exercised the option

and been issued with a Share.

• The Administrator may determine the terms and conditions on which an option

remains exercisable, if at all, following termination of the relevant participant's

employment or service with the Company. If the Administrator has not determined

such terms and conditions, then:

• the option may be exercised during a period of 30 days following termination

of employment or service with the Company to the extent the option has

vested as at the termination date;

• if the participant's employment or service with the Company ceases as a

result of their disability, the option may be exercised at any time within 6

months following such termination to the extent the option has vested as at

the termination date; and

• if the participant dies during their employment or service with the Company,

the option may be exercised by the participant's estate or a person who

acquired the right to exercise the option by bequest or inheritance at any time

within 12 months following the date of death to the extent the option has

vested as at the date of death.

• The Administrator may offer to buy out an option previously granted under the Plan.

• The Administrator may offer rights to purchase common stock under the Plan on

terms and conditions advised by it. Such rights will be subject to an option

exercisable by the Company on the termination of the participant's employment with

the Company. Once a right is exercised, the participant will have the same rights as a

securityholder.

• A participant must satisfy any applicable taxes arising in connection with the exercise

of an option or stock purchase right or an issue of Shares under the Plan.

• Options and stock purchase rights granted under the Plan may not be sold, pledged,

assigned, hypothecated, transferred or disposed of in any manner other than by will

or the laws of descent or distribution.

• The Board may, subject to the ASX Listing Rules, at any time amend, alter, suspend

or discontinue the Plan, provided that it would not materially and adversely affect the

rights of any participant under any outstanding grant, without their consent.

• The Company must during the term of the Plan, reserve and keep available such

number of Shares as are sufficient to satisfy the requirements of the Plan.

• Options granted under the Plan must be evidenced by option agreements and stock

purchase rights granted pursuant under the Plan must be evidenced by restricted

stock purchase agreements, as approved by the Administrator.

*X99999999999*

X99999999999

I/We being a member(s) of Sunshine Heart Inc and entitled to attend and vote hereby appoint:

Resolution 1

Increase in authorised capital of the

company

Resolution 2

Approval of proposed placement

For Against Abstain*

Resolution 3

Approval of the Sunshine Heart Inc,

Amended and restated 2002 Stock Plan

Resolution 4

Approval of Securities to be granted

to an Executive Director under the

Sunshine Heart Inc amended and

restated 2002 stock plan.

Proxies will only be valid and accepted by the Company if they are signed and received no later than 48 hours before the meeting.

Please read the voting instructions overleaf before marking any boxes with an X

SECURITYHOLDER VOTING FORM

or failing the person/body corporate named, or if no person/body corporate is named, the Chairman of the Meeting, as my/our proxy and

to vote for me/us on my/our behalf at the Extraordinary General Meeting of the Company to be held at 9:00am on Thursday, 28 October

2010, at Henry Davis York, Level 10, 44 Martin Place, Sydney and at any adjournment or postponement of the meeting.

APPOINT A PROXY

OR if you are NOT appointing the Chairman of the

Meeting as your proxy, please write the name of the

person or body corporate (excluding the registered

securityholder) you are appointing as your proxy

the Chairman

of the Meeting

(mark box)

STEP 1

* If you mark the Abstain box for a particular Item, you are directing your proxy not to vote on your behalf on a show of hands or on a

poll and your votes will not be counted in computing the required majority on a poll.

This form should be signed by the securityholder. If a joint holding, either securityholder may sign. If signed by the securityholder’s attorney,

the power of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company,

the form must be executed in accordance with the company’s constitution and the Corporations Act 2001 (Cth).

SIGNATURE OF SECURITYHOLDERS – THIS MUST BE COMPLETED

Securityholder 1 (Individual) Joint Securityholder 2 (Individual) Joint Securityholder 3 (Individual)

Sole Director and Sole Company Secretary Director/Company Secretary (Delete one) Director

SHC PRX001

VOTING DIRECTIONS

STEP 2



STEP 3

LODGE YOUR VOTE

 www.linkmarketservices.com.au

ONLINE

By mail:

Sunshine Heart Inc

C/- Link Market Services Limited

Locked Bag A14

Sydney South NSW 1235 Australia

 By fax: +61 2 9287 0309

All enquiries to: Telephone: +61 2 8280 7181

HOW TO COMPLETE THIS PROXY FORM

Lodgement of a Proxy Form

This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below by 9:00am on

Tuesday, 26 October 2010, being not later than 48 hours before the commencement of the meeting. Any Proxy Form received

after that time will not be valid for the scheduled meeting.

Proxy Forms may be lodged using the reply paid envelope or:

 www.linkmarketservices.com.au

ONLINE

Select the ‘Proxy Voting’ option on the top right of the home page. Choose the company you wish to lodge your vote for

from the drop down menu, enter your holding details as shown on this form, and follow the prompts to lodge your vote.

To use the online lodgement facility, securityholders will need their “Holder Identifier” (Securityholder Reference Number

(SRN) or Holder Identification Number (HIN) as shown on the front of the proxy form).

by mail:

Sunshine Heart Inc

C/- Link Market Services Limited

Locked Bag A14

Sydney South NSW 1235

Australia

by fax:

+61 2 9287 0309

by hand:

delivering it to Link Market Services Limited, Level 12, 680 George Street, Sydney NSW 2000.

If you would like to attend and vote at the Extraordinary General Meeting, please bring this form with you.

This will assist in registering your attendance.

Your Name and Address

This is your name and address as it appears on the company’s

security register. If this information is incorrect, please make

the correction on the form. Securityholders sponsored by a

broker should advise their broker of any changes. Please note:

you cannot change ownership of your securities using this

form.

Appointment of a Proxy

If you wish to appoint the Chairman of the Meeting as your

proxy, mark the box in Step 1. If the person you wish to appoint

as your proxy is someone other than the Chairman of the

Meeting please write the name of that person in Step 1. If you

leave this section blank, or your named proxy does not attend

the meeting, the Chairman of the Meeting will be your proxy.

A proxy need not be a securityholder of the company. A proxy

may be an individual or a body corporate.

Votes on Items of Business – Proxy Appointment

You may direct your proxy how to vote by placing a mark in

one of the boxes opposite each item of business. All your

securities will be voted in accordance with such a direction

unless you indicate only a portion of voting rights are to be

voted on any item by inserting the percentage or number of

securities you wish to vote in the appropriate box or boxes. If

you do not mark any of the boxes on the items of business,

your proxy may vote as he or she chooses. If you mark more

than one box on an item your vote on that item will be

invalid.

Appointment of a Second Proxy

You are entitled to appoint up to two persons as proxies to

attend the meeting and vote on a poll. If you wish to appoint

a second proxy, an additional Proxy Form may be obtained by

telephoning the company’s security registry or you may copy

this form and return them both together.

To appoint a second proxy you must:

(a) on each of the first Proxy Form and the second Proxy Form

state the percentage of your voting rights or number of

securities applicable to that form. If the appointments do

not specify the percentage or number of votes that each

proxy may exercise, each proxy may exercise half your

votes. Fractions of votes will be disregarded.

(b) return both forms together.

Signing Instructions

You must sign this form as follows in the spaces provided:

Individual: where the holding is in one name, the holder must

sign.

Joint Holding: where the holding is in more than one name,

either securityholder may sign.

Power of Attorney: to sign under Power of Attorney, you must

lodge the Power of Attorney with the registry. If you have not

previously lodged this document for notation, please attach a

certified photocopy of the Power of Attorney to this form when

you return it.

Companies: where the company has a Sole Director who is

also the Sole Company Secretary, this form must be signed by

that person. If the company (pursuant to section 204A of the

Corporations Act 2001) does not have a Company Secretary, a

Sole Director can also sign alone. Otherwise this form must be

signed by a Director jointly with either another Director or a

Company Secretary. Please indicate the office held by signing

in the appropriate place.

Corporate Representatives

If a representative of the corporation is to attend the

meeting the appropriate “Certificate of Appointment of

Corporate Representative” should be produced prior to

admission in accordance with the Notice of Meeting. A form

of the certificate may be obtained from the company’s

security registry.

*X99999999999*

X99999999999

LODGE YOUR DIRECTION

 www.linkmarketservices.com.au

ONLINE

By mail:

Sunshine Heart Inc

C/- Link Market Services Limited

Locked Bag A14

Sydney South NSW 1235 Australia

 By fax: +61 2 9287 0309

All enquiries to: Telephone: +61 2 8280 7181

Resolution 1

Increase in authorised capital of the

company

Resolution 2

Approval of proposed placement

For Against Abstain*

Resolution 3

Approval of the Sunshine Heart Inc,

Amended and restated 2002 Stock Plan

Resolution 4

Approval of Securities to be granted

to an Executive Director under the

Sunshine Heart Inc amended and

restated 2002 stock plan.

This form will only be used for the purpose of voting on the resolutions specified below.

To direct the Trustee on how to vote on any resolution, please insert in the appropriate box.

In the absence of a direction by you, the Trustee has no direction and your votes will not be counted.

VOTING DIRECTION FORM

I, being a participant of the CHESS Depositary Interest (CDI) holder in the Sunshine Heart, Inc., direct CHESS Depositary Nominees Pty

Limited as Depositary Nominee on my behalf to vote on my behalf in respect of any voting rights attaching to shares held for my benefit

under the Plan at the Extraordinary General Meeting of the Company to be held at 9:00am on Thursday, 28 October 2010 at Henry Davis

York, Level 10, 44 Martin Place, Sydney and at any adjournment of that meeting. Forms will only be valid and accepted by the Company if

they are signed and received no later than 9:00am on Tuesday, 26 October 2010.

DIRECTION TO ThE TRUsTEE OF ThE PLAN

sTEP 1

* If you mark the Abstain box for a particular Resolution, you are directing the Trustee not to vote on your behalf and your votes will not

be counted in computing the required majority on a poll.

sIGNATURE OF PARTICIPANT – ThIs MUsT BE COMPLETED

Signature of Participant

Sunshine Heart Investor Resources

Updated Notice of Extraordinary General Meeting